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Watch out for refinancing scams

Own a home? Watch out, you could be the victim of a refinance or housing scam and not even know it.

Since the beginning of the Great Recession, con artists have been targeting struggling homeowners. Posing as government agencies, nonprofits and attorneys, these scammers prey on homeowners ready to do anything to save their homes from foreclosure.

But even as authorities catch on to the latest scams and shut them down, new ones evolve. Today, it’s no longer just struggling homeowners who run the risk of falling victim to hustlers.

“Many people who have been scammed were being proactive,” says Yolanda McGill, Senior Counsel for the Fair Housing and Fair Lending Project at the Lawyers’ Committee for Civil Rights Under Law. In many cases she has seen, homeowners could see life changes ahead – such as retirement or company downsizing – and wanted to refinance and lower their payments in advance of these events.

“These people were doing just fine but thought it made sense to refinance and get a new loan at a lower interest rate – and they ended up [being scammed] because they just went online and found someone or heard an ad and called on it,” McGill says.

Today’s con artists know there’s money to be made off borrowers looking to take advantage of today’s low mortgage interest rates – and they’ve come up with a variety of ways to do it.

Here are some of the most common refinancing scams out there, and how you can protect yourself.

Phony government programs

The Home Affordable Refinance Program (HARP) is a free government program that allows homeowners who are on-time with their payments but underwater on their mortgages to refinance. Con artists know this program exists – and know how to take advantage of it – by creating a phony government program that sounds like it could be real to play off the lack of knowledge borrowers have about the real program.

In this scam, a third party will contact you via phone, e-mail, flyer or direct mail to solicit your business. The scammer will generally say they’re affiliated with, or approved by, the government, and often add phony, official-looking logos to their e-mails, direct mail and website.

It can be hard to tell the difference. “If you get an official-looking letter with your loan number or address on it, don’t assume it’s real,” McGill advises. “You should assume it’s fake – no matter what – and contact your lender.”

After the initial contact, a scammer may ask you to fill out paperwork that details your financial and loan information. They will likely tell you to pay them a fee, and in exchange they’ll help you qualify for the HARP program or something that sounds equally government-like, but is fake. The scammer will probably tell you not to contact your lender, lawyer or housing counselor because he or she will handle all the details of the refinance with your lender. You may even be told to start making your mortgage payments to the scam company instead of your lender, especially if the paperwork you signed contained a hidden quit claim deed, transferring your interests in the property to the scam artist.

How to prevent it: Contact your lender directly to see if you qualify for the HARP program, and don’t believe a third party when they tell you they can expedite the process.

“The best help is free,” McGill says, “and a housing counselor cannot charge you enormous fees.” You don’t have to pay to qualify for HARP, and if someone tells you that you do, it should set off an alarm that you may be dealing with a scammer.

Also beware of signing any paperwork with a third-party company that involves your house. Always ask a real estate attorney not affiliated with the company to check the paperwork. Check out the company online by searching the name of the company and the word “complaints.” You can also see if the company or individual is licensed to do business in your state by going to your state’s department of professional regulation. If the company isn’t listed or has paperwork that is missing, you’ll know something’s amiss.

Real estate attorneys with ulterior motives

Refinancing can be a frustrating process, and loan modifications are exponentially more so. Real estate attorneys know this and they understand the homeowners and borrowers are often looking for ways to make refinancing and the loan modification process easier. An honest attorney will tell a borrower he doesn’t need legal help to refinance his property, even through the HARP program. Though the best help you can get for a loan modification is free – in the form of a HUD-approved housing counselor – not everyone is convinced they don’t need an attorney.

“Many people are frustrated, and they think they can pay someone to help them because that makes logical sense. Usually, you assume that if you’re paying for something you’ll get better service,” McGill explains.

Scammers understand this logic, and use it to take advantage of homeowners. In this refinance scam, an attorney – real or fake – will tell you they can help you refinance your home. They’ll tell you they can call your lender for you and negotiate your refinance, or help you qualify for the HARP – for a fee.

How to prevent it: An attorney simply cannot do a better job with your lender than you can, so don’t believe anyone who says he can expedite the refinancing process or get you a better deal. It isn’t true.

When might you need an attorney? If you’re fighting a foreclosure and need some legal heft, you’ll want to find an attorney who had had legitimate experience in this area. If the attorney you hire isn’t doing anything or has made false promises or has charged you for work that isn’t completed, you can file a complaint with your state’s legal disciplinary committee or call the state bar association for information.

Rent-to-own or leaseback scheme

This scam could also cost you your home. To pull this off, a scammer – sometimes posing as a real estate investor or attorney – will urge you to sign over the title or deed to your home. The con artist may tell you that doing so will allow a borrower with better credit to get a new loan at a low rate, which will ultimately benefit you.

But the scammer has no intention of ever selling you back the home. And when the new borrower defaults on the loan, you end up evicted from your own house – and in a worse position than you were before because you still are name on the mortgage to the property. In other words, you’ve sold the house but still owe every last dollar on the loan.

How to prevent it: Never, under any circumstances, sign over the deed or title of your home. If a low credit score is keeping you from refinancing, contact your lender to find out about your options, or ask a family member or good friend if they’d be willing to co-sign the loan. Worst case scenario, you may have to build up your credit before you can refinance.

In many cases, these scams exist together as a suite of services. A con artist may tell you they can help you refinance under HARP and, if that doesn’t work, do a sale-leaseback of your home or go to court for you to fight a foreclosure. Today’s scammers are ready for anything, so be on guard when shopping for lenders or housing counselors.

If you feel you’ve been scammed, file a report on the Prevent Loan Scams, and contact your state’s attorney general. You may not get your money back, but you can prevent the scammer from taking advantage of someone else.

Ilyce Glink is an award-winning, nationally syndicated real estate columnist, blogger and radio talk show host, and managing editor of the Equifax Finance Blog. Follow her on Twitter @Glink.